San Diego Considers Abandoning Financial Reserve Policy

City officials say the existing requirements are unrealistic and want to start contributing again in 2029.

Apr. 8, 2026 at 11:39pm

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A geometric abstract illustration featuring overlapping triangles and circles in shades of blue, red, and yellow, conceptually representing a city's financial reserves and budget challenges.As San Diego grapples with budget shortfalls, its reserve policy faces an uncertain future.San Diego Today

San Diego is facing a $120 million budget deficit for the upcoming fiscal year and additional deficits in future years. City finance officials are proposing to abandon the existing policy that requires the city to maintain financial reserves equal to 16.7% of annual spending, or two months of operating expenses. They contend the policy is unrealistic and has been disregarded, leaving the city with far less in reserves than required. The officials want to scrap the existing policy, make no contributions for the next two fiscal years, and start contributing again in fiscal 2029 with a new, more realistic reserve target.

Why it matters

San Diego's budget crisis and inability to meet its own reserve requirements highlights the challenges many cities face in maintaining adequate financial cushions. The city's history of financial scandals and mismanagement also factors into the debate over whether to abandon the existing policy, which some council members are reluctant to do despite the current fiscal pressures.

The details

Over the past six fiscal years, San Diego has made only one $1.5 million reserve contribution, instead of the more than $150 million required by the existing policy. This has left the city with $207.1 million in reserves instead of the $362 million it should have, making it more vulnerable to economic downturns. Finance officials want to scrap the existing policy, make no contributions for the next two fiscal years, and start contributing again in fiscal 2029 with a new, more realistic reserve target, potentially below national standards.

  • During the most recent six fiscal years — fiscal year 2021 through fiscal year 2026 — San Diego has made one reserve contribution of $1.5 million.
  • The tentative proposal will come back to the City Council's budget committee in June with more details, and then be presented later to the full council for approval.
  • Mayor Todd Gloria is scheduled to release his proposed budget for the fiscal year beginning July 1 next Wednesday.

The players

Rolando Charvel

Presented a comparison study of 10 other cities that showed San Diego's reserves were in the middle of the pack when each city's finances from fiscal year 2024 were analyzed.

Vivian Moreno

A city council member who said she agrees that reserve contributions aren't possible during the current crisis, but stressed that she wouldn't support abandoning the national standard for the amount of reserves of two-months of operating expenses.

Kent Lee

A city council member who said he supports healthy reserves, but not if it means depriving city residents of services they depend on.

Henry Foster

A city council member who said amending the city's reserve policy must come along with a comprehensive plan to solve future deficits, which he called a 'structural' problem where long-term revenues don't keep pace with long-term expenses.

Charles Modica

The city's independent budget analyst, who agreed with Council member Foster that changes to the reserve policy should be paired with a clear and time-bound commitment to resolving the city's structural budget deficit.

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What they’re saying

“If you look at the headlines across the nation, many cities — especially large cities — are facing structural issues. So I wouldn't be surprised if some of these fund balances were used as part of budget mitigation measures over the last couple of years.”

— Rolando Charvel, Presenter of comparison study

“As painful as it is, I do understand why we're not adding to the reserves right now, although I think we should always strive for that.”

— Vivian Moreno, City Council member

“I don't want to just have reserve funds sitting in an account for the sake of a positive percentage, if residents and the city are losing out on the actual services they depend on.”

— Kent Lee, City Council member

“Until we actually sit down and resolve the structural deficit, we're just applying Band-Aids.”

— Henry Foster, City Council member

“We want to stress that changes to the reserve policy should be paired with a clear and time-bound commitment to resolving the city's structural budget deficit. Without that commitment, there is a real risk the city will remain in a cycle where reserve contributions are consistently deferred because they compete with the expenditures that are needed just to maintain current service levels.”

— Charles Modica, Independent Budget Analyst

What’s next

The tentative proposal will come back to the City Council's budget committee in June with much more detail and then be presented later to the full council for approval.

The takeaway

San Diego's inability to meet its own financial reserve requirements highlights the difficult tradeoffs cities face between maintaining adequate fiscal cushions and providing essential services to residents. While abandoning the existing policy may be pragmatic in the short-term, city leaders will need to develop a comprehensive plan to address the underlying structural budget deficits to avoid a perpetual cycle of deferred reserve contributions.